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Economy

On Wealth and Poverty

We've heard a great deal in recent years about the growth in income disparity in this country.  But while the rich may be getting richer, as Steve Horwitz argues, so are the poor.  The poor (defined as those in the bottom fifth percentile of income) are, first of all, better off in absolute terms than their counterparts ten, twenty, or fifty years ago.  Not only are they wealthier (the poorest fifth make, on average, $28,000 more per year than they did in 1991, adjusted for inflation), but have access to amenities that even the middle class did not have ten years ago (i.e., cell phones and internet service).

Moreover, the vast majority (86 percent) of yesterday's poor are part of today's middle class.  This shouldn't be terribly surprising, because demographically the largest portion of the poor are the young, who tend to work in relatively low-paying jobs.  But, of course, as young people acquire more experience their income rises.

Finally, although it is true that there is currently a higher than normal percentage of the population below the poverty line (not particularly surprising given the underperformance of the economy in recent years), the percentage of the population in extreme poverty--that is, with an income less than half the poverty line--has remained stable at between 5 and 6 percent since 1980. 

As an aside that speaks to the issue of civility in politics, Horwitz received a slew of nasty e-mails over this, including one that accused him of being a "house kike for the neo-cons."

Categories > Economy

Discussions - 6 Comments

And just think the poor in this country don't have to pay federal income taxes. The rich do.

You took some liberties with the facts.

From Horwitz: "Researchers at the University of Michigan found that the poorest fifth of households in 1975 earned, on average, almost $28,000 more per year by 1991, adjusted for inflation."

You: "Not only are they wealthier (the poorest fifth make, on average, $28,000 more per year than they did in 1991, adjusted for inflation)."

That maybe true but it is not supported by Horwitz, except inso far as his conclusion states: "So when you hear someone tell you that the poor are getting poorer, don’t be fooled. Instead, ask yourself how much better off you are now than you were 10, 20, or 30 years ago and take comfort in the fact that the poor of today will likely be similarly better off 10, 20 and 30 years in the future."

So Horwitz provides an assertion that the pattern will "likely" hold.

But if the best evidence was from 1975 to 1991, and if the wants to give weight to the idea it will continue why not a study from 1991 to say 2007?

Dr. Mosier your sentence contributed more strongly to Mr. Horwitz's view of the facts...so why didn't he use it?

I can hardly be counted civil since I dislike like political labels, and thus feel myself handicaped in name distribution, and I understand the need to sometimes write a sketchy statement of facts. But the topic is potentially interesting.

The bottom fifth has gotten $200 richer since 1979 (thru 2005) But the insight of upward mobility, or the common sense observation that folks get older(thus more productive? or more cronyesque?)

Digression: Sometimes I am convinced that the middle aged folks do the most work, adjunct professors, associates, the old partners and presidents and administrators just schmooze and act as cheerleaders to bring in clients while playing golf (taking advantage/credit of Keynesian economics to prop up aggregate demand, while trimming the dime a dozen adjuncts and associates in hard times.)

Back to the matter at hand, the bottom fifth are usually younger folks who grow up to be richer. Agreed.

That said if in 15 years I am only making 28k(adjusted for inflation) more than I am now, I will still be struggling and paying off student debt.

I would like to be making 100k(adjusted for inflation) which from a near zero basis is possible.

In some sense the inflation in college tuition could only have occured in an environment where the bottom fifth was mobile, but it is still an open question how much college tuition leverages and captures future surplus.

Sorry, you're absolutely right, John. Those who were in the bottom quintile in 1975 were making on average $28,000 more in 1991--and in so doing, 86% of them made it out of the bottom quintile.

John Lewis:

In a more recent study that looked at 1999 to 2007, About 60% of those who were poor in 99 moved up one quintile or more by 07 and half of those moved up two or more. So income mobility is alive and well, even more recently.

That study shows similar results about the absolute gains in income of the poor and rich.

The devil's in the details. Much of this growing "income gap" is caused by upper middle-class dual-earner couples, something that wasn't nearly so common 40 years ago. Also, the number of single-person households has only grown over the years -- few pundits understand what a wealth-killer divorce tends to be. To paraphrase the song "War" --

Divorce, what is it good for?
Absolutely nothin'.
Friend only to the trial lawyer!

It is also true we have lost an enormous number of industrial jobs which tended to pay fairly good wages. Who's to blame for this? Unions and short-sighted politicians. So-called "free trade" will destroy any nation that employs it given enough time, but who would want a lot of tariffs in an environment where the unions would take full advantage?

Dr. Mosier- no problem and agreed.

Steve Horwitz- thank you for replying, its a point that gets considered and framed more often in the context of justifying the costs of higher education.

In my view to say that there is an "education bubble" is to say that upward mobility is oversold. But you can also say that the fact that an "education bubble" could form was due to upward mobility.

The dot-com bubble, the real estate bubble, the education bubble. It is almost always a mistake to assume they don't have some fundamental basis.

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